Cash-strapped firms turn to audits

Small companies looking to cut costs during the recession are turning to a secret weapon that bigger firms have used for years: bill and contract auditors. These expert scrutinizers scour real estate and service contracts—as well as bills for utilities, phone and Internet service, and overnight deliveries—to look for overcharges and opportunities for cost savings.

At TBRC Cost Recovery, a subsidiary of accounting firm Shanholt Glassman Klein Kramer & Co. that helps small companies cut their telecommunications bills, sales are up by about 50% since the downturn, says Yosef Rabinowitz, managing director. About 90% of its clients are firms with $40 million in sales or less, says Mr. Rabinowitz.

"We're viewed as the client's new best friend," he says. "We're squeezing out money they didn't know they had."

Don Tassone saved his company, Consultedge, about $20,000 by having an audit of his telecom services. The auditor looked at bills for the voice and data systems integration firm's office in midtown Manhattan and two other locations. It suggested Consultedge could save about 15% by opting for another carrier. Consultedge, which has revenues of $25 million to $35 million, switched about about six months ago.

The company paid half of its first year's savings to its auditor, BC Compliance Group in Matawan, N.J.

Mr. Tassone, confident the price was justified, has been referring his own clients to the firm. "We're seeing a huge increase in the desire for our services," says Rob Connolly, a partner in BC Compliance. He estimates his firm's sales are up by 35% this year.

Some small business balk at the fees auditors charge, but many auditors don't charge anything if savings are not found.

"I've had prospective clients say, `Fifty percent? Personal injury lawyers don't get 50%,' " says Mr. Rabinowitz, whose company charges 50% of the first 24 months' savings. "I tell them that before personal injury lawyers take on a case, they know there's a chance of getting you some money. We're taking a risk."

Auditors aren't a realistic option for every small business. Because many audit firms only charge if they find savings, they usually look to limit their clients to businesses with 20 employees or more or, as in TBRC's case, with at least $2,000 a month in phone bills. At larger clients, the odds are greater of finding significant overcharges.

Most billing and contractual problems that crop up are caused by human error, say the auditors. In one recent case, BC Compliance found $27,000 in overcharges that resulted from a 400-square-foot mistake in a lease. In other cases, firms that have downsized have been charged for phone lines no longer in use. Advantage IQ, a national company that, for a set fee, helps companies audit utility bills, frequently finds meter reading errors, misplaced decimal points, and sometimes evidence of water leaks that are costing clients money, says Suzanne Figy, director of operations data services.

"When a company is trying to process hundreds of invoices a month, errors can slip through," she says. One client, a local venture capital firm, recently hired Advantage IQ to serve all of the entrepreneurial companies in its portfolio—to keep their budgets lean and its profits up.

Savings can be hard to find

Not all audits result in savings, of course. Occasionally, auditors find that a client has been overcharged for one thing but undercharged for another, leaving it vulnerable to increased bills if it approaches the supplier, notes Mr. Connolly.

Although many auditors seem to offer a low-risk proposition because they don't charge up-front fees, it is important to ask auditors to disclose any financial relationships they have with alternate phone carriers or suppliers they suggest, says Mr. Connolly. His firm avoids those deals to avoid conflicts of interest.

Others, like Mr. Rabinowitz, freely admit they receive commissions similar to those of travel agents. "Those who don't rep for carriers have to negotiate and rarely get the lowest prices," he says.

AN AUDIT'S DETAILS

BIGGEST BENEFITS are for companies with 20 or more employees and/or substantial spending on telecommunications or utilities bills.

SOMEAUDITORS work on retainer, regularly scanning bills for mistakes or potential efficiencies.

MOST AUDITORS work for no up-front fee but take half of the savings for 12 or 24 months.

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